What Is Driving The Clearance Rate Weakness In Sydney & Melbourne?
Over recent weeks, auction clearance rates across the nation’s two largest housing markets (Sydney and Melbourne) have been significantly lower than they were 12 months ago however, they haven’t necessarily been all that much lower than the previous years. While comparing auction volumes and clearance rates to a year ago is valuable, it is much more valuable to look at how these metrics compare across a number of years.
Auction clearance rates in Melbourne are currently substantially lower than they were a year ago. In fact, the clearance rate of 66.9% last week was the lowest since July of last year. Although clearance rates are lower than they were a year ago, they are at fairly similar levels to what was being recorded at the same time of year in 2013, 2014 and 2015. The chart really highlights just how much stronger the auction market in Melbourne was a year ago relative to other recent years.
The volume of properties being taken to auction, particularly over recent months, has generally been higher than over recent years. By comparison, in 2016 when clearance rates were much higher than they have been this year, the number of properties being taken to auction was relatively lower than over recent years. The higher number of properties being taken to auction is likely to be having some impact on the weaker clearance rates this year relative to last however, volumes are also much higher currently than they were in 2013, 2014 and 2015 a time at which clearance rates were fairly similar to current levels. Given this, clearance rates are actually holding up quite well considering much higher volumes of auctions.
Auction clearance rate in Sydney have been at their lowest levels since 2012 over recent weeks and have been on a steady decline throughout 2017. If you exclude the low volumes in January, last week’s auction clearance rate of 54.8% was the cities lowest clearance rate since December 2015. Clearance rates have not been consistently as low at this time of year since 2012. Clearance rates are substantially lower than they were a year ago and are also slightly lower than they were two years ago when APRAs first round of macroprudential policies were significantly impacting Sydney housing demand. If the previous round of macroprudential policies is a guide we can expect a further weakening of clearance rates over the coming weeks.
Unlike Melbourne, Sydney is not seeing a substantially higher number of properties being taken to auction compared to recent years. In fact over recent weeks there has been an equivalent number of auctions across the city to volumes last year when clearance rates were much higher than they are currently, while there have been fewer auctions than in 2015 when clearance rates were similarly weak.
There has been clear evidence over recent weeks that auction clearance rates have softened in Sydney and Melbourne. The falling clearance rates in Sydney are occurring on similar volumes of auctions to recent years but matches the recent declines in dwelling values. In Melbourne, auction clearance rates have slowed and there has also been a moderate slowdown in value growth. The big difference in Melbourne has been that auction volumes have been much higher so it is difficult to know if the weaker clearance rates are because of the market overall or due to their being too much stock being put up for auction each week. Keep in mind that clearance rates typically soften through Spring as auction volumes increase so we may have to wait until 2018 to truly understand what is driving the apparent weakness in the Melbourne auction market.